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WASHINGTON
AND GENEVA—The US refusal to comply with a World Trade
Organization (WTO) decision on online gambling is
threatening to undermine the entire set of rules binding
the international trade system.
The WTO is
to decide soon on a demand from the tropical nation of
Antigua and Barbuda for $3.4 billion in annual
compensation from the US, whose law banning Americans from
wagering on Internet gaming sites was first ruled illegal
by the WTO in 2004.
The
implications of the case go far beyond Antigua, a nation
of 69,000. That’s because, instead of rewriting its
gambling laws, the US rewrote its trade rules to remove
the issue from the WTO’s jurisdiction. The prospect that
other nations, including
China,
may take a similar tack if cases don’t go their way has
spooked the international trade community.
“This is
by far the most significant WTO case ever,’’ says Naotaka
Matsukata, a policy adviser in Washington with Alston +
Bird LLP and a former US trade official. Matsukata’s firm
represents British companies that process online payments,
including gambling payments.
Meanwhile,
Antigua, which has rebuffed US overtures to settle, wants
WTO permission to waive intellectual-property protection
on digital software and entertainment so it can collect
its compensation. That is raising alarm among trade
associations that represent such companies as Microsoft
Inc., General Electric Co.’s Universal Pictures and Time
Warner Inc.’s Warner Bros., as well as among groups such
as the Recording Industry Association of America.
“Antigua
literally is the mouse that roared,’’ says Robert
Lighthizer, head of the international trade practice at
Skadden, Arps, Slate, Meagher & Flom LLP.
The fight
began a decade ago, after Jay Cohen, a former options
trader from California, moved to Antigua. There, he set up
a sports book that accepted online bets from around the
globe. US prosecutors said the enterprise was illegal, and
Cohen returned to fight the charges. In 2000 a federal
jury found him guilty, and he spent 17 months in a Las
Vegas prison.
Returning
to the Caribbean nation, Cohen persuaded the government to
bring a WTO complaint against the US The island’s booming
gambling industry, which at its height in 2001 accounted
for more than 10 percent of employment, helped finance the
case, which Antigua filed in 2003.
The
dispute dragged on, with
Antigua’s gambling industry, led by Cohen, banking on a clean win that would
open the
US
market.
Instead,
the conflict has multiplied, with other US trading
partners with online-gambling interests—including Japan,
the European Union and Canada—following Antigua’s lead in
demanding compensation from the
US.
The US, EU,
Canada and Japan agreed today on terms for compensation
that include giving service suppliers from those nations
guaranteed access to the US postal and courier, research
and development, storage and warehouse markets.
“We
would’ve written a check to Antigua, paid them to go
away,’’ says John Magnus, a trade lawyer at Miller &
Chevalier in Washington. “Instead, they pressed the
point.’’
Magnus
says “the strategy they’ve pursued is not designed to
advance the interests of Antigua. It’s pique and anger
from some individual businessmen.’’
Cohen
declined to comment. Gretchen Hamel, a spokesman for the
US Trade Representative’s office, declined to comment.
A lawyer
representing Antigua says it’s the US stance that
jeopardizes global trade. “The US has been a big
beneficiary to this system,’’ says Mark Mendel, a partner
in the Cork, Ireland, office of Mendel-Blumenfeld LLP.
“They have a real stake in keeping everybody believing in
it and following its rules. This is going to weaken the
entire institution.’’
After the
US lost the case in 2005, the Bush administration invoked
a WTO rule that allowed it to revise its trade
obligations. “This is the trade equivalent of taking our
ball and going home,’’ Rep. Shelley Berkley, a Nevada
Democrat, told the House Judiciary Committee in November.
“You can be sure that if China one day decides that it
shouldn’t have to comply with its WTO obligations, we will
be the first to object.’’
The US
decision to strip gambling from its WTO obligations won
praise from professional sports, including the National
Football League, Major League Baseball and the National
Basketball Association.
“It is
clear to us that the United States never intended to make
a commitment with respect to gambling services,’’ the
group wrote in an August letter to US Trade Rep. Susan
Schwab.
The US
raised the ante in October 2006, passing a law placing
further restrictions on online gambling. That hurt
European firms such as PartyGaming Plc., Bwin Interactive
Entertainment AG and SportingBet Plc.
Last month
EU Trade Commissioner Peter Mandelson visited Washington
to encourage Congress to pass legislation liberalizing US
gambling laws.
The other
twist in the case is that
Antigua trades so few goods that it would be unable to collect
enough compensation by raising tariffs, the way aggrieved
trading partners typically resolve disputes.
Tourism is
the main contributor to
Antigua’s $875-million economy. The country exports about $40
million a year in goods and services to the
US and
imports about $350 million, so taxing products from the US
would mainly hurt Antiguan consumers and businesses.
The island
nation’s proposed remedy—WTO permission to waive
intellectual-property protection on some software—raises
concerns in Hollywood, as well as among technology
companies such as Microsoft. The Motion Picture
Association of America says the
US should retaliate by stripping
Antigua of
any trade or foreign-aid preferences.
“Does it
make sense for a country to expressly allow criminal
conduct? We believe it most certainly does not,’’ says
Jonathan Lamy, a spokesman for the Recording Industry
Association of America.
While
software and technology lobbyists say it’s unlikely
Antigua will get what it’s asking for, they say they are
concerned nonetheless.
“The
demand by Antigua is ridiculous,’’ said Morgan Reed,
executive director of the Association for Competitive
Technology, the industry trade group that includes
companies such as Microsoft and eBay. ``The scary thing is
that they’re asking for it.’’ (With reporting by Mark
Drajem in Washington and Jennifer Freedman in Geneva.)
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